Longest US boom is officially over

America's longest lasting economic expansion has come to a close, official figures confirmed yesterday, as the World Bank warned that the global economy is on the verge of recession, following the September 11 attacks.

The US economy shrank at an annual rate of 0.4% in the third quarter of the year, the department of commerce said ,led by a sharp slowdown in consumer spending growth to 1.2% and a 12% fall-off in business investment.

Although smaller than expected, the contraction in GDP was the largest for 10 years and analysts said a deeper decline could follow in the current quarter and spill over into next year before reversing on the back of increased government spending and tax cuts.

The World Bank added to the gloom, slashing its forecast for world growth next year to 1.6% from an April estimate of 3.3% and warning that the attacks on New York and Washington might have exacerbated the downturn which was already gripping the world before September 11.

"As 2001 draws to a close, the global economy is slipping precariously toward recession," it said in its annual report, Global Economic Prospects. "The terrorist attacks in the United States, although it is still too early to evaluate them fully, have unleashed new and unpredictable forces that have substantially raised the risk of a global downturn."

As fears of a full-blown recession in the US mounted, President Bush urged Congress to agree a multi-billion dollar package of tax cuts and spending to resuscitate the ailing economy. He seized on mounting unemployment, now expected to reach 6% by the end of 2002, and a slump in consumer confidence to urge congressional leaders from both parties to present him with a stimulus package - worth about $100bn - by the end of November.

Mr Bush's advisers are warning Congress that it is "playing with fire" and will deepen the downturn if it holds up the package. "It's time for our government to act positively," Mr Bush told business leaders in Washington.

Analysts said the Federal Reserve was likely to respond to the GDP squeeze by making its tenth cut in interest rates since the beginning of the year when it meets next week.

The Argentine government looked likely to announce a restructuring of its $132bn external debt, adding to fears that the knock-on effects of September 11 may be widespread. President Fernando de la Rua was meeting provincial governors to try to agree budget cuts which would help pay for an economic stimulus package.